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Inefficiencies in the “social value” market

I’ve been pondering how to produce a lot of social value for comparatively little cost, and thinking about it in terms of finding inefficiencies in the “social value” market.

People are already pouring a ton of resources into creating social value, mostly out of self-interest — to generate profit for themselves — and occasionally out of altruism. As a general rule, if you want to create a large amount of value, you need to have an unusual amount of luck or skill to hit upon a great innovation, or you need to just throw a ton of money at the problem. (For example, a straightforward way to create more socially useful innovation would just be to invest a ton of money into R&D.)

But there are exceptions to that rule, and ways to tweak the system so that it allows people to produce more value at roughly the same level of input. Below are seven examples of the kind of inefficiency exploit I’m talking about (note that I’m not strongly vouching for the efficacy of every one of these interventions, just using them as examples of a category):

1. Add liquidity where needed. Many poor people could boost their lifetime earnings significantly if they only had a little bit of startup capital, so microloans or small cash grants can have a high ROI. Many poor people languish in jail for months simply because they don’t have money to pay bail, so bail loans can do a large amount of good — and have a high repayment rate, since a large majority of people show up for trial.

2. Solve coordination problems. In many cases people are happy to fund a socially valuable project, but only if they know that enough other people will also fund it for it to get off the ground. Kickstarter allows those transactions to happen. Donor chains multiply the impact of a single non-directed kidney donation many times over, by coordinating with other people who would also be willing to make non-directed kidney donations conditional on a friend or relative of theirs receiving a donation.

3. Pool risks. Insurance can insulate people from catastrophic downside risks — for example, crop-yield insurance to protect farmers in the event of natural disasters. FDA hedges can enable companies to invest R&D in potentially valuable drugs, insulating them from the risk of drugs that don’t pan out.

4. Provide information that enables people to allocate their resources better. People often make bad choices simply because they lack information about the quality of the different options. Glassdoor lets people share information about companies to help others decide where to work. Givewell shares analyses of charity effectiveness so people can allocate their donations to charities that produce more value for the world.

5. Restructure a choice set so our biases work for us, instead of against us. Status quo bias means people often stick with the default option even if they’d be happier with the alternative. So “nudges” like making organ donation opt-out, instead of opt-in, can significantly increase the rate of organ donation. Another example is prize-linked savings accounts, which offer people the thrill of gambling in exchange for putting money away (unlike a traditional lottery, in which participants simply lose their money).

6. Remove rent-seeking. When a group enriches itself not by creating new value, but by taking value away from others, we call that “rent-seeking.” For example, in many cases, occupational licensing keeps prices for a service high, enriching existing members of a profession at the expense of consumers and would-be entrants to that profession. So one way to get “free” value is to get rid of unnecessary occupational licensing. Another example: Scientific publishers charge high subscription prices for access to research and don’t add much value in exchange. Sci-Hub removed their ability to extract rents by making that research publicly available.

7. Reduce transaction costs.Wave makes it cheaper for immigrants to send remittances to their home countries. Atlas makes it cheaper for people around the world to start businesses. DoNotPay is a bot that makes it cheaper to appeal parking tickets.